Banking reporter

"There is one sector of the financial sector in Australia that the government has never properly looked at, which is superannuation" ... Peter Costello. Photo: Australian Financial Review

THE former treasurer Peter Costello has called for any top-level review into the banking sector to be broadened to take in the $1.4 trillion superannuation industry, saying governments had failed to properly assess whether the system was meeting people's retirement needs.

The share of wages that must be put into super is set to rise to 12 per cent from 9 per cent today and Mr Costello said ''very few people'' realised this system had recently lost money and there was a risk workers were being forced to make ''bad investments''.

The Coalition is planning to hold a ''root and branch'' review of the financial system if it wins the next election, a move the shadow treasurer, Joe Hockey, has dubbed the ''son of Wallis'', in reference to the landmark 1997 review by the businessman Stan Wallis.

Mr Costello, who as treasurer commissioned the Wallis inquiry into the financial system, said that the review would be beneficial only if its focus was on broad questions such as whether superannuation was serving the interests of members and the whole economy.

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''There is one sector of the financial sector in Australia which the government has never properly looked at, which is superannuation,'' Mr Costello said. ''That should be looked at, particularly at a time when the government is requiring people to give up more and more of their take-home pay and hand it across to this industry, and it's going to affect retirement incomes and national savings.''

Mr Costello said there had been an assumption in Australia that putting extra money into super was automatically a good thing, but what funds were returning for members had been overlooked.

Dismal sharemarket returns have taken a savage toll on retirement savings, the typical super fund failing to make a positive return over the past five years.

Over the past year, the average balanced super fund has returned just 0.3 per cent, well short of inflation. On a five-year basis, the rolling returns represent a loss of 0.2 per cent, according to SuperRatings figures.

''After passing laws that require the money to go off into superannuation, [the government] appears to be blissfully unconcerned what happens to it after that,'' Mr Costello said.

''I think this is where the current government and the current Treasurer are blissfully ignorant that they are requiring people to give up more and more of their income and lose it.''

The Wallis inquiry is credited with boosting competition and contributing to the resilience of the nation's banking system.

But the global financial crisis has sharply increased the big banks' dominance. The major banks now control about 85 per cent of the market for new home loans, up from 60 per cent before the crisis.

Mr Costello said the review could look at how to put more competitive pressure on the banks and whether super could provide them with a more efficient source of funds than global money markets. He said this arrangement had never been examined through an economic lens because super was treated as an industrial relations issue.

Senior bankers, including the chief executive of the Commonwealth Bank, Ian Narev, have said they would support an independent review of the banking system if it was commissioned by the government.